Deutsche Bank Vows to Defend Fixed-Income Trading After Cuts

(Bloomberg) -- Deutsche Bank AG vowed to maintain its position in fixed-income trading after recording its weakest second quarter in that business since the global financial crisis, as Chief Executive Officer Christian Sewing accelerates the lender’s turnaround effort.

Income from buying and selling fixed-income securities slumped 17 percent from a year earlier to 1.37 billion euros ($1.6 billion), the lowest figure for the period since 2008, Germany’s largest bank said on Wednesday. The five largest U.S. investment banks saw total debt trading revenue rise by 6.7 percent over the same timespan.

Sewing, who assumed his post less than four months ago, is trying to reverse what the bank has called a “vicious circle” of declining revenue, sticky expenses and rising funding costs. Revenue stabilized in the quarter and adjusted costs fell slightly, with Sewing pledging more discipline on expenses.

Deutsche Bank Vows to Defend Fixed-Income Trading After Cuts

“Restructuring on track,” wrote JPMorgan Chase & Co. analyst Kian Abouhossein. But the bank is “not out of the woods yet on revenue.”

Deutsche Bank rose 0.2 percent at 9:15 a.m. in Frankfurt trading. The shares, which hit a record low in June, have pared some losses since the company on July 16 reported preliminary results that were better than analysts had expected.

Sewing is cutting at least 7,000 jobs and retrenching in investment banking areas such as prime finance, U.S. rates, and corporate finance in the U.S. and Asia. Some of the bank’s top investors, speaking on condition of anonymity, have urged that the bank provide more details and said more radical measures than Sewing has proposed may be needed.

Deutsche Bank Vows to Defend Fixed-Income Trading After Cuts

“In the second quarter we accelerated the reshaping of our bank significantly and proved the resilience of our global business,” Sewing said in a statement. “We’re making important changes to our core businesses as promised, we’re headed in the right direction on costs, and our balance sheet quality is strong.”

Higher funding costs, cuts to the U.S. rates business and exchange-rate swings will probably mean that revenue from fixed-income trading will be “slightly lower” this year. Still, the bank said it’s “confident of maintaining its position as the fourth-largest house globally in fixed income and currencies.”

Despite the declines in trading, revenue at the securities unit, the biggest contributor overall to income, held up in the second quarter, falling just 1 percent. That reflected higher income from the advisory business as well as several one-time effects. Global transaction banking increased 4 percent, a sign that the business has turned a corner, Sewing said.

“It is comforting that Deutsche Bank is on track but we believe improving returns from a low level will take time,” said Anke Reingen, an analyst at RBC Capital Markets, in a note to investors.

Other highlights from Deutsche Bank’s 2Q 2018 earnings:

2Q 20182Q 2017
RevenueEU6.59bEU6.62b
Fixed income tradingEU1.37bEU1.65b
Equity tradingEU540mEU577m
Adjusted costsEU5.58bEU5.64b
Pretax profitEU711m EU822m
Net incomeEU401mEU466m

©2018 Bloomberg L.P.